Internal Loan Policy

Policy Statement

POLICY

There are four types of internal loans: 1) standard, 2) capital construction/ renovation, 3) gift bridging, and 4) nonstandard. The Treasury Office supports a uniform internal loan lending process for standard, capital construction/renovation, and gift bridging loans, described below. Nonstandard loans may be approved by the CFO (or a delegate of the CFO) with amount, term, interest rate, and debt service payment determined on a case-by-case basis; however, the principles set forth herein will generally apply to all loans, unless otherwise noted.

Internal Loan Principles

Loan Review and Financial Transparency. The process for loan review, approval, transmission of loan proceeds, and overall oversight will be completed in a manner that aligns with the financial transparency values of Dartmouth. The Treasurer's Office and financial leadership will work with unit leadership to ensure that all aspects of this process are managed and delivered with clarity of deadlines, documentation, and rationale for decisions.

Interest Rate. Dartmouth provides transparent lending rates and terms to units and projects, reducing cost of capital uncertainty. The interest rate is fixed for the life of the loan and rates will not be changed on previously approved or executed internal loans. The interest rate is determined by the Treasurer's Office and is based on the Treasury Constant Maturity (TCM) rate for a comparable term plus a spread.  The TCM benchmark rates can be found at: https://www.federalreserve.gov/datadownload/ Choose.aspx?rel=H15

Any request to waive or adjust interest charges must be approved by the CFO.

Note: For A-21 compliance purposes, the interest on service center loans must be charged to a non-service center chart string of the school/division/unit that sponsors the service center.

Loan Eligibility. The Treasurer's Office will work with each unit to evaluate eligibility for a loan. The submission criteria for standard, capital construction/ renovation, and gift bridging internal loans are outlined in further detail below.

STANDARD INTERNAL LOAN

Standard internal loans are typically extended for equipment or large asset purchases and the repayment period typically aligns with the useful life of the purchased item.

Internal Loan Amount:

• Minimum:   $50,000
• Maximum:  $500,000

Internal Loan Term:

The loan term cannot exceed the depreciable useful life of the equipment or renovation being financed, or 5 years, whichever is less. The typical loan term for select equipment is:

• Computers / Servers: 3 years
• Other Equipment and Vehicles: 5 years

Debt Service Payment:

• Frequency: Principal and Interest paid Monthly
• Amount:  The amount borrowed will be amortized over the term of the loan to determine total principal and interest for each fiscal year. Although the loan will be amortized over multiple fiscal years, within a fiscal year the monthly principal and interest payments will be consistent each month.
• Start date: The month after the asset is purchased
• Prepayment: Allowed, with no penalty

Internal Loan Request and Approval Process:

1. Document Submission: The unit submits the following information to the Treasury Office:
   • Description of the renovation or equipment to be financed.
   • Amount of loan and repayment period requested, including anticipated start date.
   • Alternative funding options considered, including analysis of reserves.
   • Chart string to fund debt service if loan is approved.
2. Document Review and Loan Assessment: The Treasury Office determines if the asset qualifies for a standard internal loan and if so, determines the interest rate, term, and monthly debt service. 
3. Post Review: If the loan is approved, Treasury provides information to the Budget Office and the Controller's Office. If neither office raises concerns or questions, Treasury provides the information to the unit. If/when the unit accepts the terms of the loan, Treasury forwards all pertinent information to the Budget Office and the Controller's Office. If the Treasury Office determines an internal loan cannot be approved based, the Treasury Office will provide explanation to the unit for the internal loan denial.

Internal Loan Setup Process:

• The Controller's Office sets up the appropriate values in the chart of accounts to record the internal loan, provides the necessary information to record the loan and the monthly payments in the General Ledger.
• The unit purchases the asset/equipment and notifies the Controller's Office of the amount and chart string where the purchase is recorded.
• The Controller's Office sets up the internal loan by removing the purchase from the operating chart string, capitalizing the asset, and initiating a recurring monthly entry for the debt service.

CAPITAL CONSTRUCTION/RENOVATION INTERNAL LOAN

Capital construction/renovation internal loans may be extended to approved capital projects.

Internal Loan Amount:

• Minimum:   $250,000
• Maximum:  Determined by CFO

Debt Service Payment:

• Frequency: Principal and Interest paid Monthly 
• Amount: The amount borrowed will be amortized over the term of the internal loan to determine total principal and interest for each fiscal year. Although the loan will be amortized over multiple fiscal years, within a fiscal year the monthly principal and interest payments will be consistent each month.
• Start date: The beginning of the first quarter following the final drawdown of the loan funds; in some cases, this may be before final capital project completion date
• Prepayment: No penalty; please contact the Treasury Office with prepayment plans. The Treasury Office will work with the Controller's Office and the Budget Office to ensure payments are received and if the loan is not fully paid off that any remaining payments are re-calculated.

Internal Loan Request and Approval Process:

The internal loan review and decision process is outlined below. Approval for each internal loan is determined by the CFO and should be completed before capital project approval.

1. Loan Funding Discussion: Units should meet with the Treasurer's Office and CFO, as needed, to discuss internal loan needs early in the planning stages of a capital project; discussion should include loan amount, estimated drawdown schedule, repayment term, and how the repayments will be funded
2. Capital Project Approval: The project must be approved through the normal Capital Budget process
3. Establish Final Loan Terms: Once the capital project is approved, the identified funding sources will be identified, including the loan amount; Treasury Office will document the final terms, estimated start date, and repayment term
4. Establish Interest Rate: Treasury will provide the interest rate once the project begins based on the Treasury Constant Maturity (TCM) rate for a comparable term plus 1.25% (125 basis points), outlined above

Loan Setup Process:

• Once all approvals are obtained (steps 2 and 3 above), the unit submits the CIP account setup form to the Controller's Office, indicating internal loan funding amount approved; the Controller's Office requests a new subactivity for the loan
• As capital project expenses are incurred, they are incurred to the identified CIP chart string
• The Controller's Office funds the capital project from internal loan funds, and initiates a recurring monthly entry for the debt service

INTERNAL LOAN FOR BRIDGE OF GIFTS

For select capital projects with funding from gifts, an internal loan may be needed to cover any shortfall due to timing of the receipt of pledge payments and the capital spending. Bridge loans are interest-only and repaid as cash payments for pledge payments are received.

Internal Loan Amount and Term: Determined and approved by CFO

Debt Service Payment:

• Frequency: Interest paid quarterly
• Amount: Interest amount determined based on internal loan extended each quarter
• Start date: The first quarter after the project begins and there is a funding shortfall between the pledge payments and capital spending
• Establish Interest Rate: The interest rate is established when the internal loan begins and is constant for the term of the loan, based on the Treasury Constant Maturity (TCM) rate for a comparable term plus 1.25% (125 basis points), outlined above

Internal Loan Request and Approval Process:

The internal loan review and decision process is outlined below. Approval of bridge funding loans is determined by the CFO and should be completed before capital project approval.

1. Loan Funding Discussion: Units should provide the payment schedule for gift commitments
2. Capital Project Approval: The project must be approved through the normal Capital Budget process
3. Monitor Capital Spending and Gift Funding: Once the capital project begins expenditures, on a quarterly basis, the Treasurer's Office will monitor any shortfall to calculate the loan amount and related interest due (if there is a funding shortfall after all anticipated gifts have been received, the funding obligation will remain the obligation of the unit, and can be paid outright by the unit or converted into an amortizing loan, with the amortization period matching the life of the asset)
4. Establish Interest Rate: Treasury will provide the interest rate once the first shortfall is identified

Loan Setup Process:

• Once all approvals have been obtained, the unit submits the CIP account setup form to the Controller's Office; the Controller's Office requests a new subactivity for the loan
• As capital project expenses are incurred, they are incurred to the identified CIP chart string
• The Controller's Office funds the capital project from approved funding sources, which may include internal loan funds to support any shortfall; debt service will be calculated based on the bridge funding amount

APPROVED BY

Chief Financial Officer